Abe’s predecessor, Junichiro Koizumi, set the stage for important changes to what arguably had become the most complacent of the world’s major economies. Fancying himself as Japan’s answer to Margaret Thatcher, Koizumi sought to sell key government holdings such as Japan Post, to reduce wasteful spending and to get politicians’ hands off the economy.

After five years of taking on Japan Inc., Koizumi turned the task over to Abe in September 2006. While Abe had many failings, his biggest was taking Japan’s recovery for granted.

Instead of surrounding himself with reformers, Abe hired a bunch of old-school Liberal Democratic Party apparatchiks. The media focus was on how four of them resigned and one committed suicide because of financial irregularities. The real problem was that households felt more and more excluded during the longest recovery since the war.

Abe even botched the timing of his resignation. He should have gone after his party’s defeat in Upper House elections in July. Then, two weeks after reshuffling his Cabinet and days before an address to the Diet to explain why he should stay on, Abe quits.

Koizumi wasn’t an unabashed success. His ideas to modernize Japan were a broad blueprint that required keen attention and political will by his successors. Abe was far more enamored with rewriting the Constitution and teaching patriotism.

Return to recession?

A year later, deflation persists and the economy may be back in recession. Japan is far healthier than it was six years ago. Banks have disposed of bad loans, companies are hiring again and the Bank of Japan ended its “zero-interest-rate” policy. Yet Japan is still performing well below potential.

The last straw for voters was a pension-fund scandal. Abe was unable to win back public trust after news the government mismanaged 50 million pension records. To many voters, it was symptomatic of the ruling LDP’s unsteady handling of the economy.

Marx Brothers management

It was as if the Marx Brothers were in charge. Think about it. The key to making Japan’s recovery self-reinforcing is getting households to spend more. And then the LDP has to admit it lost records of the money that millions of families would presumably be relying on to feel comfortable to consume more.

Persistent deflation was another obstacle. With bizarre regularity, Abe’s finance ministers claimed to see inflation on the horizon — only to eat those words as consumer prices continued to weaken.

Reform momentum died

One of the best-kept secrets about this recovery is how few Japanese are seeing its benefits. Discouraged by declining wages, consumers became the most pessimistic in almost three years in August. While financial-market turmoil certainly didn’t help, wages have fallen every month this year.

Consumption, which makes up more than 50 percent of the economy, increased in the second quarter at less than half the pace of the previous three months. That’s bad news as the outlook for exports dims during a global growth slowdown. Japan’s gross domestic product shrank at a 1.2 percent annual rate in the second quarter.

Granted, one leader can’t be expected to achieve much in a $4.5 trillion economy in a year. Abe’s real failing was that he slowed the movement toward change that existed when he came to office.

Rather than building on and accelerating Koizumi’s initiatives, Abe allowed elements of Japan Inc. to creep back in.

The return of cross-shareholdings between companies and of poison pills to combat takeovers showed how a distracted Abe failed to mind the store. Abe also did little to tackle three pressing issues: raising productivity, reversing dismal demographic trends and competing with China.

Fix the economy

All three are related. There has been much excitement about how companies are hiring again, yet the real challenge is to get current employees to produce more. That, along with increased innovation and entrepreneurship, is the only way high-cost Japan can maintain its standard of living as low-cost China rises.

Here, Japan’s shrinking population is a cause for concern. In November 2006, Jim Rogers, who cofounded the Quantum Hedge Fund with George Soros in 1970, made headlines when he said: “If the current birthrate, which is the lowest in the major developed countries, continues, there will be no Japanese. Who will pay the enormous debt?”

While there’s some hyperbole in that question, Abe showed little interest in trying to answer it. Japan’s debt-to-GDP ratio is about 170 percent, the largest among developed economies. That debt load will become even more onerous as the central bank normalizes short-term interest rates, which are just 0.5 percent.

Uncertainty is bad for markets, and it’s an open question who will replace Abe. Many people are looking to 71-year-old veteran Yasuo Fukuda. Whoever becomes Japan’s next leader will need to make a beeline for the economy. If not, the Marx Brothers will remain in charge and voters will show them the door.

William Pesek is a Bloomberg News columnist. The opinions expressed are his own.